BOND REPORT: Treasury Yields Fall After Reports On Jobless Claims, Wholesale Inflation

By Sunny Oh Features Dow Jones Newswires

U.S. wholesale inflation falls 0.1% in July

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Treasury yields lost further ground on Wednesday, as a weak reading for wholesale inflation clouded the third-quarter economic outlook and the picture for one more rate hike this year, which can be bearish on bonds.

The benchmark 10-year Treasury's yield fell 1.4 basis point to 2.234%, contributing to the previous session's decline of 3.6 basis points. The yield for the 2-year note was flat at 1.339%, while the yield for the 30-year bond, also known as the long bond, dipped 1.2 basis point to 2.812%.

In early trading, traders eyed a rush of economic reports. The producer-price index fell 0.1% in July, its first drop in 11 months, missing consensus expectations of a 0.2% gain from economists surveyed by MarketWatch. Jobless claims for the week ending Aug. 5 rose 3,000 to 244,000 (http://www.marketwatch.com/story/us-jobless-claims-rise-by-3000-to-244000-2017-08-10), but the 4-week average, a more stable gauge, slipped 1,000 to 241,000.

See: U.S. wholesale inflation fall 0.1% in July, first decline in almost a year (http://www.marketwatch.com/story/us-wholesale-inflation-fall-01-in-july-first-decline-in-almost-a-year-2017-08-10)

The worrisome dip in wholesale inflation comes ahead of Friday's key consumer-price data, the main highlight of the week. Bond investors are paying newfound attention to inflation figures as more members from the policy-setting Federal Open Markets Committee have said that the inflation outlook is giving it pause as the central bank considers raising rates one more time in 2017 (http://www.marketwatch.com/story/feds-evans-backs-balance-sheet-reduction-but-ambivalent-toward-another-rate-hike-2017-08-09). Previously, Fed Chairwoman Janet Yellen had said the deteriorating economic data were "transitory." (http://www.marketwatch.com/story/fed-holds-interest-rates-steady-dismisses-first-quarter-slump-as-transitory-2017-05-03)

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Traders on the Fed futures market are betting on a 49.3% chance of a rate increase in December's policy meeting, compared with 42.8% a day earlier, according to the Chicago Mercantile Exchange's FedWatch tool (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html/).

Investors are pivoting their attention back towards the state of the economy, providing a reprieve for those watching the heightening geopolitical hostilities between the U.S. and North Korea (http://www.marketwatch.com/story/government-bonds-draw-bids-as-us-north-korea-tensions-mount-2017-08-09). Tensions on the Korean peninsula have spilled over into financial markets, attracting a flow of buyers into government paper as investors sought out assets perceived as safe.

New York Fed President William Dudley will hold a press briefing at 10 a.m. Eastern to speak on regional wage inequality. But he is known to use such events to convey his thoughts on monetary policy, even if the topic of the prepared remarks might be of less interest to market participants, said Ward McCarthy, chief financial economist for Jefferies.

Elsewhere, the German 10-year government bond, or the bund, slipped more than 1 basis point to 0.414%. Equivalent French 10-year bonds followed suit, also dipping to 0.710%.

(END) Dow Jones Newswires

August 10, 2017 09:01 ET (13:01 GMT)